Dive Brief:

• Puerto Rico's struggling electric utility has reportedly reached a tentative agreement with two insurance companies, MBIA Inc. and Assured Guaranty Ltd., that would allow it to restructure $8.2 billion in debt and avoid default on almost $200 million in interest due Jan. 1.
• Bloomberg Business explains that the arrangement with insurers, as well as some bondholders, will help ease debt payments so the utility can invest in modernizing and upgrading its electric system. 
• Puerto Rico has struggled to bring renewable generation online and uses oil to generate most of its power. As a result, the utility has some of the highest power prices in the United States.

Dive Insight

Puerto Rico's utility is facing a $1 billion shortfall this year and has a hefty interest payment due in a week and a half. But Bloomberg Business, quoting sources familiar with the dealings, said Puerto Rico Electric Power Authority (PREPA) has struck a "tentative agreement" with a pair of insurance companies and some bondholders that could allow the utility to restructure and begin improving its electric system.

The arrangement would provide for about $450 million, Bloomberg reports, in the event of default. Last month, PREPA reached a deal with bondholders, who agreed to take a 15% loss on what they are owed.

PREPA has plans to modernize its generation and distribition system but for the moment, the island's residents have some of the highest power prices in the nation — between $0.26 and $0.28/kWh. More than 70% of Puerto Rico's electricity comes from burning petroleum, 18% from natural gas, and 8% from coal.

The arrangement will still require approval from Puerto Rico lawmakers, and will necessitate a special session called by Gov. Alejandro Garcia Padilla. Bloomberg reports that Gov. Padilla claimed that the territory will default as soon as January because it has run out of cash.

Puerto Rico's agencies are unable to file for municipal bankruptcy protection. But earlier this month, the U.S. Supreme Court said it would hear an appeal by the territory to restore a local debt-restructuring law that would allow some island public corporations, including PREPA, to request bondholders to take losses. 

Speaking to Bloomberg about news of the deal, Daniel Solender, head of municipal debt at Lord Abbett & Co. in Jersey City, N.J., said it "suggests it’s possible to do it without Chapter 9. ... It suggests there is the possibility of negotiating with bondholders.”